Establish a Sustainable ESG Reporting Program

Strengthen corporate performance by implementing a holistic and proactive reporting approach.

Analyst Perspective

The shift toward stakeholder capitalism cannot be pinned on one thing; rather, it is a convergence of forces that has reshaped attitudes toward the corporation. Investor attention on responsible investing has pushed corporations to give greater weight to the achievement of corporate goals beyond financial performance.

Reacting to the new investor paradigm and to the wider systemic risk to the financial system of climate change, global regulators have rapidly mobilized toward mandatory climate-related disclosure.

IT will be instrumental in meeting the immediate regulatory mandate, but their role is much more far-reaching. IT has a role to play at the leadership table shaping strategy and assisting the organization to deliver on purpose-driven goals.

Delivering high-quality, relevant, and consistent disclosure is the key to unlocking and driving sustainable corporate performance. IT leaders should not underestimate the influence they have in selecting the right technology and data model to support ESG reporting and ultimately support top-line growth.

Yaz Palanichamy
Senior Research Analyst
Info-Tech Research Group

Donna Bales
Principal Research Director
Info-Tech Research Group

Executive Summary

Info-Tech Insight

Implementing a robust reporting program takes time. Start early, remain focused, and plan to continually improve data quality and collection and performance metrics

Putting “E,” “S,” and “G” in context

Corporate sustainability depends on managing ESG factors well

Environmental, social, and governance are the components of a sustainability framework that is used to understand and measure how an organization impacts or is affected by society as a whole.

Human activities, particularly fossil fuel burning since the middle of the twentieth century, have increased greenhouse gas concentration, resulting in observable changes to the atmosphere, ocean, cryosphere, and biosphere. The “E” in ESG relates to the positive and negative impacts an organization may have on the environment, such as the energy it takes in and the waste it discharges.

The “S” in ESG is the most ambiguous component in the framework, as social impact relates not only to risks but also to prosocial behavior. It’s the most difficult to measure but can have significant financial and reputational impact on corporations if material and poorly managed.

The “G” in ESG is foundational to the realization of “S” and “E.” It encompasses how well an organization integrates these considerations into the business and how well the organization engages with key stakeholders, receives feedback, and is transparent with its intentions.

The impact of ESG factors on investment decisions

Alleviate Investment Risk

Organizational Reputation: Seventy-four percent of those surveyed were concerned that failing to improve their corporate ESG performance would negatively impact their organization’s branding and overall reputation in the market (Intelex, 2022).

Ethical Business Compliance: Adherence to well-defined codes of business conduct and implementation of anti-corruption and anti-bribery practices is a great way to distinguish between organizations with good/poor governance intentions.

Shifting Consumer Preferences: ESG metrics can also largely influence consumer preferences in buying behavior intentions. Research from McKinsey shows that “upward of 70 percent” of consumers surveyed on purchases in multiple industries said they would pay an additional 5 percent for a green product if it met the same performance standards as a nongreen alternative (McKinsey, 2019).

Responsible Supply Chain Management: The successful alignment of ESG criteria with supply chain operations can lead to several benefits (e.g. producing more sustainable product offerings, maintaining constructive relationships with more sustainability-focused suppliers).

Environmental Stewardship: The growing climate crisis has forced companies of all sizes to rethink how they plan their corporate environmental sustainability practices.

Compliance With Regulatory Guidelines: An increasing emphasis on regulations surrounding ESG disclosure rates may result in some institutional investors taking a more proactive stance toward ESG-related initiatives.

Sustaining Competitive Advantage: Given today’s globalized economy, many businesses are constantly confronted with environmental issues (e.g. water scarcity, air pollution) as well as social problems (e.g. workplace wellness issues). Thus, investment in ESG factors is simply a part of maintaining competitive advantage.

Leaders increasingly see ESG as a competitive differentiator

The perceived importance of ESG has dramatically increased from 2020 to 2023

In a survey commissioned by Schneider Electric, researchers categorized the relative importance of ESG planning initiatives for global IT business leaders. ESG was largely identified as a critical factor in sustaining competitive advantage against competitors and maintaining positive investor/public relations.
Source: S&P Market Intelligence, 2020; N=825 IT decision makers

“74% of finance leaders say investors increasingly use nonfinancial information in their decision-making.”
Source: EY, 2020

Regulatory pressure to report on carbon emission is building globally

The Evolving Regulatory Landscape

Canada

• Canadian Securities Administrators (CSA) NI 51-107 Disclosure of Climate-related Matters

United States

• Securities and Exchange Commission (SEC) 33-11042 – The Enhancement and Standardization of Climate-Related Disclosures for Investors
• SEC 33-11038 Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure
• Nasdaq Board Diversity Rule (5605(f))

Europe

• European Commission Sustainable Finance Disclosure Regulation (SFDR)
• European Commission EU Supply Chain Act
• The German Supply Chain Act (GSCA)
• Financial Conduct Authority UK Proposal (DP 21/4) Sustainability Disclosure Requirements and investment labels
• UK Modern Slavery Act, 2015

New Zealand

• The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021

Accurate ESG reporting will be critical to meet regulatory requirements

ESG reporting is the disclosure of environmental, social, and governance (ESG) data via qualitative and quantitative reports.

It is how organizations make their sustainability commitments and strategies transparent to stakeholders.

For investors it provides visibility into a company's ESG activities, enabling them to align investments to their values and avoid companies that cause damage to the environment or are offside on social and governance issues.

Despite the growing practice of ESG reporting, reporting standards and frameworks are still evolving and the regulatory approach for climate-related disclosure is inconsistent across jurisdictions, making it challenging for organizations to develop a robust reporting program.

However, organizations will struggle to meet reporting requirements

Despite the commitment to support an ESG Initiative, less than a quarter of IT professionals say their organization can accurately report on the impact of its ESG initiatives, and 44% say their reporting on impacts is not accurate.

Reporting accuracy was even worse for reporting on carbon footprint with 46% saying their organization could not report on its carbon footprint accurately. This despite most IT professionals saying they are working to support environmental mandates.

Global sustainability rankings based on ESG dimensions

Global Country Sustainability Ranking Map

Country Sustainability Scores (CSR) as of October 2021
Scores range from 1 (poor) to 10 (best)
Source: Robeco, 2021

ESG Performance Rankings From Select Countries

Top ESG and sustainability performer

Finland has ranked consistently as a leading sustainability performer in recent years. Finland's strongest ESG pillar is the environment, and its environmental ranking of 9.63/10 is the highest out of all 150 countries.

Significant score deteriorations

Brazil, France, and India are among the countries whose ESG score rankings have deteriorated significantly in the past three years.

Increasing political tensions and risks as well as aftershock effects of the COVID-19 pandemic (e.g. high inequality and insufficient access to healthcare and education) have severely impacted Brazil’s performance across the governance and social pillars of the ESG framework, ultimately causing its overall ESG score to drop to a CSR value of 5.31.

Largest gains and losses in ESG scores

Canada has received worse scores for corruption, political risk, income inequality, and poverty over the past three years.

Taiwan has seen its rankings improve in terms of overall ESG scores. Government effectiveness, innovation, a strong semiconductor manufacturing market presence, and stronger governance initiatives have been sufficient to compensate for a setback in income and economic inequality.

Source: Robeco, 2021

Establish a Sustainable Environmental, Social, and Governance (ESG) Reporting Program

Blueprint benefits

Business Benefits

• Clarity on technical and organizational gaps in the organization’s ability to deliver ESG reporting strategy.
• Transparency on the breadth of the change program, internal capabilities needed, and accountable owners.
• Reduced likelihood of liability.
• Improved corporate performance and top-line growth.
• Confidence that the organization is delivering high-quality, comprehensive ESG disclosure.

IT Benefits

• Understanding of IT’s role as strategic enabler for delivering high-quality ESG disclosure and sustainable corporate performance.
• Transparency on primary data gaps and technology and tools needed to support the ESG reporting strategy.
• Clear direction of material ESG risks and how to prioritize implementation efforts.
• Awareness of tool selection options.

Blueprint deliverables

Each step of this blueprint is accompanied by supporting deliverables to help you accomplish your goals:

Info-Tech offers various levels of support to best suit your needs

DIY Toolkit
"Our team has already made this critical project a priority, and we have the time and capability, but some guidance along the way would be helpful."

Guided Implementation
"Our team knows that we need to fix a process, but we need assistance to determine where to focus. Some check-ins along the way would help keep us on track."

Workshop
"We need to hit the ground running and get this project kicked off immediately. Our team has the ability to take this over once we get a framework and strategy in place."

Consulting
"Our team does not have the time or the knowledge to take this project on. We need assistance through the entirety of this project."

Diagnostics and consistent frameworks are used throughout all four options.

Guided Implementation

A Guided Implementation (GI) is a series of calls with an Info-Tech analyst to help implement our best practices in your organization.

A typical GI is 8 to 12 calls over the course of 4 to 6 months.

What does a typical GI on this topic look like?

Phase 1

Explore ESG Reporting

This phase will walk you through the following:

• Define key stakeholders and material ESG factors.
• Identify material ESG issues.
• Develop SMART program metrics.
• List reporting obligations.
• Surface high-level data gaps.
• Record high-level implementation considerations.

This phase involves the following participants: CIO, CCO, CSO, business leaders, legal, marketing and communications, head of ESG reporting, and any dedicated ESG team members

Practical steps for ESG disclosure

Measuring and tracking incremental change among dimensions such as carbon emissions reporting, governance, and diversity, equity, and inclusion (DEI) requires organizations to acquire, analyze, and synthesize data from beyond their internal organizational ecosystems

1.1 Ensure your reporting requirements are comprehensive

This section will walk you through some key considerations for establishing your ESG reporting strategy. The first step in this process is to identify the scope of your reporting program.

Defining the scope of your reporting program

1. Stakeholder requirements: When developing a reporting program consider all your stakeholder needs as well as how they want to consume the information.
2. Materiality assessment: Conduct a materiality assessment to identify the material ESG issues most critical to your organization. Organizations will need to report material risks to internal and external stakeholders.
3. Purpose-driven goals: Your ESG reporting must include metrics to measure performance against your purpose-driven strategy.
4. Regulatory requirements & industry: Work with your compliance and legal teams to understand which reporting requirements apply. Don’t forget requirements under the “S” and “G” components. Some jurisdictions require DEI reporting, and the Securities and Exchange Commission (SEC) in the US recently announced cybersecurity disclosure of board expertise and management oversight practices.

Factor 1: Stakeholder requirements

Work with key stakeholders to determine what to report

Evaluate your stakeholder landscape

Consider each of these areas of the ESG Stakeholder Wheel and identify your stakeholders. Once stakeholders are identified, consider how the ESG factors might be perceived by delving into the ESG factors that matter to each stakeholder and what drives their behavior.

Determine ESG impact on stakeholders

Review materiality assessment frameworks for your industry to surface ESG factors for your segment and stakeholder group(s).

Perform research and analysis of the competition and stakeholder trends, patterns, and behavior

Support your findings with stakeholder interviews.

Stakeholders will prioritize ESG differently. Understanding their commitment is a critical success factor.

Many of your stakeholders care about ESG commitments…

27%: Support for social and environmental proposals at shareholder meetings of US companies rose to 27% in 2020 (up from 21% in 2017).
Source: Sustainable Investments Institute, 2020.

79%: of investors consider ESG risks and opportunities an important factor in investment decision making.
Source: “Global Investor Survey,” PwC, 2021.

...Yet

33%: of survey respondents cited that a lack of attention or support from senior leadership was one of the major barriers preventing their companies from making any progress on ESG issues.
Source: “Consumer Intelligence Survey,” PwC, 2021.

Info-Tech Insight

To succeed with ESG reporting it is essential to understand who we hold ourselves accountable to and to focus ESG efforts in areas with the optimal balance between people, the planet, and profits